TMI Blog2023 (12) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as deduction U/s. 80P(2)(a)(i) of the Act and thereby the Ld. CIT(A) - NFAC has rightly held by deleting the addition made by the Ld. AO - Decided in favour of assessee. - Shri Duvvuru Rl Reddy, Hon ble Judicial Member And Shri S Balakrishnan, Hon ble Accountant Member For the Assessee : Shri G.V.N.Hari, AR For the Revenue : Shri Madhukar Aves, DR ORDER PER SHRI DUVVURU RL REDDY, JUDICIAL MEMBER : This appeal is filed by the revenue against the order of Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi vide DIN Order No.ITBA/NFAC/S/250/2021-22/1046341784(1) dated 17.10.2022, arising out of assessment order passed u/s 143(3) of the Income Tax Act, 1961 (in short Act ) dated 17.10.2022 for the Assessment Year (A.Y.) 2018-19 and the cross objections filed by the assessee in support of the order of the Ld.CIT(A). 2. Brief facts of the case are that the assessee, a Primary Agricultural Co-operative Credit Society engaged in the business of providing credit facilities, supply of agricultural inputs and consumer goods to it s members filed it s return of income for the A.Y. 2018-19 on 18.08.2018, admitting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative societies. Further, it was also proposed to disallow the deduction u/s 80P of the Act towards dividend income of Rs. 3,70,365/-. The AO proposed to bring to tax the interest income and the dividend income under the head income from other sources u/s 56 of the Act. In response to the show cause letter and the draft assessment order, the assessee furnished it s objections vide letter dated 01.02.2021, submitting that the District Central Cooperative Bank Ltd. is also formed under the State Cooperative Societies Registration Act and all the primary agricultural cooperative credit societies like the assessee only are the members of the DCCB. The assessee further submitted that as per the Cooperative Societies Rules the assessee is required to make investment with DCCB and such investment constitutes the capital fund of the DCCB and that the DCCB advances the same to various primary cooperative credit societies as per their requirements, hence, the interest income received from DCCB on share capital is eligible for deduction u/s 80P of the Act. The assessee also submitted that the interest income received from other banks is also eligible for deduction u/s 80P of the Act. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80P(2)(a)(i). The Ld.CIT(A) relied on the decision of Hon ble Supreme Court in the case of The Mavilayi Service Cooperative Bank Ltd. Ors. Vs. CIT, Calicut Ors. dated 12.01.2021, the facts of which are distinguishable from the facts of the present case. Thus, the order passed by the Ld.CIT(A) dated 17.10.2022 is erroneous and prejudicial to the interest of the revenue. The Ld.DR further contended that the AO is justified in making addition of Rs. 2,59,54,906/- and Rs. 3,70,365/- towards disallowance of deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act by relying on the decision of Hon ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. Vs. Income Tax Officer (2010) 311 ITR 283 (SC) dated 08.02.2010, holding that interest income earned by the assessee society from fixed deposits pertaining to reserve fund kept with nationalized (schedule) banks / cooperative banks is not eligible for deduction u/s 80(P)(2)(a) and 80P(2)(d) of the Act. He, therefore, pleaded to quash the order passed by the Ld.CIT(A) and uphold the addition made by the AO. 7. Per contra, the Ld.AR filed paper book before us and contended that the Ld.CIT(A) is justified in delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Credit Co-op Society Ltd.(supra) as follows : 8. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. It is an admitted fact that the assessee has claimed deduction U/s. 80P(2)(a)(i) of the Act on the interest accrued and received by the assessee U/s. 80P(2)(a)(i) of the Act. The contention of the Ld. AO is that as per section 80P(2)(d), the assessee is eligible to claim deduction U/s. 80P(2)(a)(i) of the Act only when it is invested with any other cooperative society. The Ld. AO also placed heavy reliance in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) while disallowing the claim made by the assessee U/s. 80P(2)(a)(i) of the Act. We have perused the rati o laid down by the Hon ble Apex Court in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) and found that in that case the society is engaged in marketing of the agricultural produce by its members as per section 80P(2)(a)(iii) while carrying on the business of banking or providing credit facilities to its members U/s. 80P(2)(a)(i) of the Act. In that case, the Society retained the sale proceeds which was otherwise payable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modities, the whole of such income; 10. From the plain reading of section 80P(2)(a)(i) of the Act, the whole of amount of profits and gains of the business attributable to one or more of such activities shall be allowed as a deduction. Further, section 80P(2)(d) and 80P(2)(e) of the Act also allows similar deductions. It is clear that the deductions available under clauses (a) to (e) of section 80P(2) are activity based whereas clauses (d) and (e) are investment based. The distinction between clauses (a) and clauses (d) (e) on the other hand is that the benefit under clause (a) is restricted to only into those activities of a cooperative society enlisted in sub-clause (a) whereas the benefit of clauses (d) (e) are available to all cooperative societies without any restriction on the activities carried on by them. In simple terms, the benefit under clause (a) will be limited only to the profits gains of the business attributable to any one or more of such activities. But in case, if the cooperative society has an income not attributable to any one or more of such activities listed in sub-clauses (i) to (vii) of clause-(a), the same may go out of the purview of clause (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent note. 11. Further, the Hon ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another (supra) held that the cooperative society is eligible for deduction U/s. 80P(2)(a)(i) of the Act on the interest income received from investment in banks. The Hon ble High Court in paras 35 to 37 of its judgment held as under: 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be. 36. The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression attributable to a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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